nep-pub New Economics Papers
on Public Finance
Issue of 2019‒04‒15
eighteen papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Taxing Top Incomes in a World of Ideas By Charles I. Jones
  2. The value added tax and growth: Design matters By Santiago Acosta-Ormaechea; Atsuyoshi Morozumi
  3. Population size and the size of government By Tim Krieger; Daniel Meierrieks
  4. Investment Responses to Tax Policy under Uncertainty By Guceri, Irem; Albinowski, Maciej
  5. Valuation in the Public and Private Sectors: Tax, Risk, Debt Capacity, and the Cost of Capital By Richard A. Brealey; Ian A. Cooper; Michel A. Habib
  6. Why Do Fiscal Multipliers Depend on Fiscal Positions? By Huidrom, Raju; Kose, Ayhan; Lim, Jamus; Ohnsorge, Franziska
  7. Tax Professionals: Tax-Evasion Facilitators or Information Hubs? By Battaglini, Marco; Guiso, Luigi; Lacava, Chiara; Patacchini, Eleonora
  8. Ethnicity and tax filing behavior By Spencer Bastani; Thomas Giebe; Chizheng Miao
  9. Taxation and Migration: Evidence and Policy Implications By Kleven, Henrik; Landais, Camille; Munoz, Mathilde; Stantcheva, Stefanie
  10. Tax Expenditure Reporting and Its Use in Fiscal Management; A Guide for Developing Economies By International Monetary Fund
  11. Corporate Income Taxes and (Un-)Employment in the OECD By Antonio Estache; Beni Kouevi Gath
  12. Business Taxation in an Emerging Economy: Analysing Corporate Tax Incidence By Agarwal, Samiksha; Chakraborty, Lekha
  13. Can a Green Tax Reform Entail Employment Double Dividend in European and non-European Countries? A Survey of the Empirical Evidence By Maxim, Maruf Rahman; Zander, Kerstin
  14. Do Tax Incentives Affect Business Location and Economic Development? Evidence from State Film Incentives By Button, Patrick
  15. Market Heterogeneity and the Distributional Incidence of Soft-drink Taxes: Evidence from France By Fabrice Etilé; Sebastien Lecocq; Christine Boizot-Szantai
  16. Workers' Employment Rates and Pension Reforms in France: the Role of Implicit Labor Taxation By Didier Blanchet; Antoine Bozio; Simon Rabaté; Muriel Roger
  17. Who is burdened by taxes in Poland? By Jakub Sawulski
  18. Tax Administration Reforms: Lessons from Georgia and Uganda By Magumba, Margaret

  1. By: Charles I. Jones
    Abstract: This paper considers the taxation of top incomes when the following conditions apply: (i) new ideas drive economic growth, (ii) the reward for creating a successful innovation is a top income, and (iii) innovation cannot be perfectly targeted by a separate research subsidy --- think about the business methods of Walmart, the creation of Uber, or the "idea" of These conditions lead to a new force affecting the optimal top tax rate: by slowing the creation of the new ideas that drive aggregate GDP, top income taxation reduces everyone's income, not just the income at the top. When the creation of ideas is the ultimate source of economic growth, this force sharply constrains both revenue-maximizing and welfare-maximizing top tax rates. For example, for extreme parameter values, maximizing the welfare of the middle class requires a negative top tax rate: the higher income that results from the subsidy to innovation more than makes up for the lost redistribution. More generally, the calibrated model suggests that incorporating ideas as a driver of economic growth cuts the optimal top marginal tax rate substantially relative to the basic Saez calculation.
    JEL: E0 H2 O4
    Date: 2019–04
  2. By: Santiago Acosta-Ormaechea; Atsuyoshi Morozumi
    Abstract: Does the design of a tax matter for growth? Assembling a novel dataset for 30 OECD countries over the 1970-2016 period, this paper examines whether the value added tax (VAT) may have different effects on long-run growth depending on whether it is raised through the standard rate or through C-efficiency (a measure of the departure of the VAT from a perfectly enforced tax levied at a single rate on all consumption). Our key findings are twofold. First, for a given total tax revenue, a rise in the VAT, financed by a fall in income taxes, promotes growth only when the VAT is raised through C-efficiency. Second, for a given VAT revenue, a rise in C-efficiency, offset by a fall in the standard rate, also promotes growth. The implication is thus that in OECD countries broadening the VAT base through fewer reduced rates and exemptions is more conducive to higher long-run growth than a rise in the standard rate.
    Keywords: VAT; Economic growth; Standard rate; C-efficiency; Base broadening
    Date: 2019
  3. By: Tim Krieger; Daniel Meierrieks
    Abstract: We examine the effect of population size on government size for a panel of 130 countries for the period between 1970 and 2014. We show that previous analyses of the nexus between population size and government size are incorrectly specified and fail to consider the influence of cross-sectional dependence, non-stationarity and cointegration. Using a panel time-series approach that adequately accounts for these issues, we find that population size has a positive long-run effect on government size. This finding suggests that effects of population size that increase government size (primarily due to the costs of heterogeneity, congestion, crime and conflict) dominate effects that reduce government size (primarily due to scale economies).
    Keywords: government size, population size, non-stationary, cross-sectional dependence, panel cointegration
    JEL: H11 H50
    Date: 2019
  4. By: Guceri, Irem (Oxford University Centre for Business Taxation, Said Business School); Albinowski, Maciej (Ministry of Finance of Poland)
    Abstract: How does economic uncertainty affect the impact of tax policy? To answer this question, we exploit a unique natural experiment, in which two very similar investment subsidies were implemented in the same country, two years apart: once during a period of economic stability, and once during a period of very high uncertainty. The experiment features sharp discontinuities in firm eligibility, and we conduct our analysis using tax returns (corporate and VAT) and trade data for the universe of corporations. We find that, under low uncertainty, tax incentives have strong positive effects on investment, both on the extensive and intensive margins. This aligns with the findings in several recent empirical papers. Under high uncertainty, however, the story is very different: the effect at the intensive margin is still present, but the effect at the extensive margin disappears. Together, these results suggest that: (1) some firms "wait and see" during periods of high uncertainty, even in the presence of generous incentives; and (2) periods of stability offer an important policy opportunity to encourage investment.
    Keywords: investment; uncertainty; tax policy; natural experiment; Poland
    JEL: C21 H25
    Date: 2019–04–12
  5. By: Richard A. Brealey (London Business School); Ian A. Cooper (London Business School); Michel A. Habib (University of Zurich; Swiss Finance Institute)
    Abstract: The public and private sector costs of capital differ in the presence of taxes, because taxes are a cost to the private but not the public sector. We use a quasi-arbitrage approach to show how to include taxes in a comparison of capital costs. We find that taxes induce distortions that generate a systematic private sector preference for assets with rapid tax depreciation, high debt capacity, and low risk. We examine the implications of that preference for privatization, government outsourcing, and regulation. Our approach facilitates the analysis of transactions such as pure risk transfers, otherwise difficult using standard discounting methods.
    Date: 2018–10
  6. By: Huidrom, Raju; Kose, Ayhan; Lim, Jamus; Ohnsorge, Franziska
    Abstract: The fiscal position can affect fiscal multipliers through two channels. Through the Ricardian channel, households reduce consumption in anticipation of future fiscal adjustments when fiscal stimulus is implemented from a weak fiscal position. Through the interest rate channel, fiscal stimulus from a weak fiscal position heightens investors' concerns about sovereign credit risk, raises economy-wide borrowing cost, and reduces private domestic demand. We document empirically the relevance of these two channels using an Interactive Panel Vector Auto Regression model. We find that fiscal multipliers tend to be smaller when fiscal positions are weak than strong.
    Keywords: Fiscal multipliers; fiscal position; interest rate; Ricardian channel; state-dependency
    JEL: E62 H50 H60
    Date: 2019–04
  7. By: Battaglini, Marco; Guiso, Luigi; Lacava, Chiara; Patacchini, Eleonora
    Abstract: To study the role of tax professionals, we merge tax records of 2.5 million taxpayers in Italy with the respective audit files from the tax revenue agency. Our data covers the entire population of sole proprietorship taxpayers in seven regions, followed over seven fiscal years. We first document that tax evasion is systematically correlated with the average evasion of other customers of the same tax professional. We then exploit the unique structure of our dataset to study the channels through which these social spillover effects are generated. Guided by an equilibrium model of tax compliance with tax professionals and auditing, we highlight two mechanisms that may be behind this phenomenon: self-selection of taxpayers who sort themselves into professionals of heterogeneous tolerance for tax evasion; and informational externalities generated by the tax professional activities. We provide evidence supporting the simultaneous presence of both mechanisms.
    Keywords: tax enforcement; tax evasion
    JEL: H26 K34
    Date: 2019–04
  8. By: Spencer Bastani; Thomas Giebe; Chizheng Miao
    Abstract: We analyze differences in tax filing behavior between natives and immigrants using population-wide Swedish administrative data, focusing on two empirical examples. First, controlling for a rich set of variables, we compare deduction behavior of immigrants and natives with the same commuting patterns within Sweden’s largest commuting zone. We find that newly arrived immigrants file fewer deductions than natives, that immigrants with a longer duration of stay in the host country behave more like natives, and that immigrants with the longest stay file the most, even more than natives. Second, we analyze bunching behavior among the self-employed at the salient first kink point of the Swedish central government income tax schedule, located in the upper middle part of the income distribution. We find that self-employed immigrants exhibit significantly less bunching behavior than natives, even after a long time in the host country. We highlight residential segregation as a main driver of the observed behavioral differences.
    Keywords: deductions, tax filing, bunching, immigrants, natives, integration
    JEL: D31 H21 H24 H26 J22 J61
    Date: 2019
  9. By: Kleven, Henrik; Landais, Camille; Munoz, Mathilde; Stantcheva, Stefanie
    Abstract: In this article, we review a growing empirical literature on the effects of personal taxation on the geographic mobility of people and discuss its policy implications. We start by laying out the empirical challenges that prevented progress in this area until recently, and then discuss how recent work have made use of new data sources and quasi-experimental approaches to credibly estimate migration responses. This body of work has shown that certain segments of the labor market, especially high-income workers and professions with little location-specific human capital, may be quite responsive to taxes in their location decisions. When considering the implications for tax policy design, we distinguish between uncoordinated and coordinated tax policy. We highlight the importance of recognizing that mobility elasticities are not exogenous, structural parameters. They can vary greatly depending on the population being analyzed, the size of the tax jurisdiction, the extent of tax policy coordination, and a range of non-tax policies. While migration responses add to the efficiency costs of redistributing income, we caution against over-using the recent evidence of (sizeable) mobility responses to taxes as an argument for less redistribution in a globalized world.
    Date: 2019–04
  10. By: International Monetary Fund
    Abstract: This note aims to inform governments on how to account for tax expenditures and use that information in fiscal management. The emphasis is on developing and emerging market economies, where the use of such accounts is in its infancy because of data constraints, insufficient human and financial resources, and weak fiscal institutions. Most developing economies, more-over, do not have tax policy units in their Ministry of Finance to provide analytical support to the govern¬ment and legislature that integrates all revenue policy aspects. As a result, the tax policy framework can be fragmented: line ministries compete in the provision of sectoral tax incentives, but do not report on their cost. The note is organized as follows. The second section outlines the role that tax expenditure measurement and reporting can play in fiscal management. The third section provides a step-by-step approach on how tax expenditure accounts can be built, with emphasis on data, methods and models, and institutional requirements. The section is concerned primarily with the direct cost of tax expenditures—that is, the revenue forgone because of them. It does not deal with their indirect costs, which could include economic efficiency losses and additional tax administration resources, and it does not address assessment of the benefits of tax expenditures. The fourth summarizes the current sta¬tus of tax expenditure reporting in developing econo¬mies, with some reference to advanced economies. The last section concludes.
    Keywords: Fiscal management;Fiscal policy;Tax administration;Taxes;Tax Expenditure,Fiscal Management,Developing Economies,emerging markets
    Date: 2019–03–27
  11. By: Antonio Estache; Beni Kouevi Gath
    Abstract: This paper assesses how corporate income tax rate (CITR) changes and the aggregate unemployment rate are related in the OECD. The analysis is based on a sample of 20 OECD countries over the period 1999 to 2014. In contrast to earlier cross-country research, we account explicitly for differences in labor market policies and institutions. The main result is that, on average, a CITR cut is associated with an increase in the unemployment rate. This implies that, for this sample, the substitution effect of the tax rate cut on jobs dominates its output effect. This is consistent with a significant switch to less labor intensive capital which is not compensated by a new demand induced by the output effect of the tax cut. Labor market and structural characteristics differences across countries explain differences in the relative strength of these two effects. We also find that differences in reactions to the 2008 Subprime crisis also impacted the relative size of these two effects.
    Keywords: corporate taxation ,fiscal policies
    Date: 2019–03
  12. By: Agarwal, Samiksha; Chakraborty, Lekha
    Abstract: This paper estimates the incidence of corporate taxes in an emerging economy –India- using the data from 5,666 business firms listed in the Bombay Stock Exchange (BSE) and the National Stock Exchange of India (NSE) for the period 2000-15. Using the dynamic panel models, we find that capital bear the burden of corporate taxation relatively more than the labour. Our findings highlight that the burden of corporate tax is more on capital than labour. It is also found that the effective tax rate is higher for the small corporate firms than the gigantic firms. Further research is required to understand whether less incidence of corporate taxation on wages in India is due to profit shifting.
    Keywords: corporate tax incidence, dynamic panel, factor mobility, labour, capital, business taxation
    JEL: E6 H22
    Date: 2019–03–01
  13. By: Maxim, Maruf Rahman; Zander, Kerstin
    Abstract: This paper synthesises the simulation studies concerning green tax reform (GTR) and employment double dividend (EDD) in European and non-European countries. The studies included investigate the effect of GTR on employment. We compared the simulation results between European and non-European countries to understand the impact of study region and our findings are fivefold. First, the simulation results suggest that GTR-driven EDD is observed in both European and non-European countries, but the average effect on employment in European countries (0.67%) is significantly greater than in non-European countries (0.18%). Second, optimal tax and tax revenue recycling policies in European and non-European countries for EDD are not identical. Reducing employers’ social security contributions (SSC) has the potential to generate EDD in both countries. However, a reduction in value added tax has the highest average effect on employment in European countries (1.62%), which negatively affects employment in non-European countries (−0.02%). Third, a reduction in personal income tax as a tax recycling method creates a marginally average employment dividend in non-European countries (0.16%) but is counterproductive in European countries (−0.15%). Fourth, other taxes, which predominantly represent mixed taxes, exhibit the highest EDD potential in both European (1.01%) and non-European (0.46%) countries. Finally, employment dividend diminishes over time, but a weak quadratic pattern has been observed that reveals an accelerating effect on employment in the long term. These reflections should be considered before employing GTR in non-European countries in order to yield EDD.
    Keywords: Green Tax Reform, Double Dividend, Employment
    JEL: E24 H21 H23
    Date: 2019–04–08
  14. By: Button, Patrick (Tulane University)
    Abstract: I estimate the impacts of recently-popular U.S. state film incentives on filming location, film industry employment, wages, and establishments, and spillover impacts on related industries. I compile a detailed database of incentives, matching this with TV series and feature film data from the Internet Movie Database (IMDb) and Studio System, and establishment and employment data from the Quarterly Census of Employment and Wages and Country Business Patterns. I compare these outcomes in states before and after they adopt incentives, relative to similar states that did not adopt incentives over the same time period (a panel difference-in-differences). I find that TV series filming increases by 6.3 to 55.4% (0.67 to 1.50 additional TV series) after incentive adoption. However, there is no meaningful effect on feature films, and employment, wages, and establishments in the film industry and in related industries. These results show that the ability for tax incentives to affect business location decisions and economic development is mixed, suggesting that even with aggressive incentives, and "footloose" filming, incentives can have little impact.
    Keywords: economic development, tax incentives, state taxation, business location, film industry
    JEL: H25 H71 R38 L82 Z11
    Date: 2019–03
  15. By: Fabrice Etilé (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique); Sebastien Lecocq (ALISS - Alimentation et sciences sociales - INRA - Institut National de la Recherche Agronomique); Christine Boizot-Szantai (ALISS - Alimentation et sciences sociales - INRA - Institut National de la Recherche Agronomique)
    Abstract: Market heterogeneity may affect the distributional incidence of soft-drink taxes if households sort by income across markets with different characteristics. We use the Kantar Worldpanel homescan data to analyse the distributional incidence of the 2012 French soda tax on Exact Price Indices (EPIs) that measure consumer welfare from the price, availability and consumption of Sugar-Sweetened Beverages (SSBs) at a local market level. After correcting prices for consumer heterogeneity in preferences, we find that the soda tax had a significant but small national average impact corres- ponding to a pass-through of approximately 40%. Producers and retailers set significantly higher pass-throughs in low-income, less-competitive and smaller markets and for cheaper but less popular brands. Market heterogeneity ultimately has substantial distributional effects, as it accounts for approximately 35% of the difference in welfare variation between low- and high-income consumers.
    Keywords: Soft-drink tax,Nutrition,Tax incidence,Inequality,Market Structure,Consumer Price Index
    Date: 2019–03
  16. By: Didier Blanchet; Antoine Bozio; Simon Rabaté; Muriel Roger
    Abstract: Over the last fifteen years, France has experienced a reversal of older workers’ labor force participation and employment rates. Changes in health, life expectancy or education levels over the period are trend variables and thus cannot explain this “U-shaped” time profile. Pension reforms and associated changes in monetary incentives to retire are a more plausible explanation. Their impact is measured by the implicit tax rate on working longer, which combines induced changes in the level of benefits and the fact of foregoing one year of these benefits. We also account for changes in the relative importance of alternative pathways to normal retirement. Pension reforms and access to these alternative pathways have moved in ways that can account for a significant part of the “U-shaped” pattern of older workers labor force participation.
    JEL: H55
    Date: 2019–04
  17. By: Jakub Sawulski
    Abstract: The aim of the study is to find out differences in taxes paid by low earners in comparison to taxes paid by high earners. Our analysis leads to the conclusion that the Polish tax system is regressive: it imposes a greater burden on people with low incomes than on those with high incomes. This is neither in line with the rules of social policy nor with the trends in other countries.
    Keywords: tax system, social policy, redistribution, income inequalities
    JEL: H20 H21 H23
    Date: 2019–03
  18. By: Magumba, Margaret
    Abstract: Several tax revenue administrations have implemented significant reforms along their journeys with the aim of attaining higher tax revenue collections, improved taxpayer compliance and more efficient service delivery. The results defer from country to country depending on the nature of the reforms implemented and the circumstances surrounding them. This paper analyses and contrasts the tax reforms implemented in Georgia during its post-revolution period (after 2003) with those implemented in Uganda between 1991 and 2014. The analysis seeks to establish why Uganda’s reforms did not achieve as much success as those of Georgia even though the two countries’ reforms had much in common, and to derive key lessons from Georgia’s experience. Whereas there are rational justifications for the difference in results attained from the two countries’ tax reforms, the paper proposes that Uganda – and other countries – can also be successful if similar principles are followed. The key lessons derived from Georgia’s experience include: (1) for tax reforms to be successful, they must be driven by both the tax administration leadership and the overriding government leadership; (2) in order to curb corruption, there must be a transformation of mindset of both tax administrators and taxpayers; (3) early success of tax reforms must be matched with visible improvement in public service delivery in order to ensure sustainability of achievements; (4) tax administrators must be empowered to perform their duties without political interference; (5) tax laws and reforms must be applied uniformly to all taxpayers; and (6) salary increments for tax administrators must be matched with an increased probability of detection of corruption and guaranteed termination of employment should a tax administrator be found guilty of corruption.
    Keywords: Finance, Governance,
    Date: 2019

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